Holden to shut in 2016

General Motors Holden (GMH) is likely to shut down its local manufacturing operation in 2016, according to a leaked report.

The report, prepared by University of Adelaide professor Goran Roos, concluded that “it is therefore likely that vehicle assembly will eventually cease: 2016 being the earliest date”. The report did indicate that a shutdown in either 2018 or 2022 was also possible.

According to The Adelaide Advertiser, the report was initially drafted for Holden and the Australian Manufacturing Workers’ Union, as part of negotiations over a cut to workers’ conditions to keep the Elizabeth plant open. It assumed that the manufacture/assembly of mass-market vehicle platforms at GMH was unsustainable.

South Australian premier Jay Weatherill has told Fairfax Radio that the car industry was responsible for 13,000 jobs in the state, and losing car manufacturing would be a huge blow to the state. Mr Weatherill said there needs to be a quick decision on Commonwealth government funding for the car industry. He added that Australia needs changes to the automotive manufacturing sector to make it competitive in future.

Ford has already announced that it will shut its plant in Melbourne by October 2016, while Holden is seeking further funding before committing to invest in plant upgrades to enable it to build new models beyond 2016. The main issue if Holden does close is that Toyota will likely follow suit, and only around 30% of major suppliers would survive the closure of both operations, resulting in mass unemployment.

But the Federal government is deeply divided over whether to continue funding the car industry. Rationalists argue that the sector is dying anyway and the funds could be better utilised to retrain and support workers who lose their jobs, while the doomsayers predict the loss of car manufacturing will have a huge impact on our GDP, not to mention the loss of potentiall hundreds of thousands of jobs.

Either way, the automotive aftermarket is likely to continue on its merry way, with companies like ARB Corporation (ASX: ARP), Super Retail Group (ASX: SUL), AMA Group (ASX: AMA), Metcash’s (ASX: MTS) Autobarn, as well as Repco and Burson Automotive supplying products for many different makes and models of cars.

Foolish takeaway

It seems inevitable that Holden will eventually shut up shop in Australia at some stage in the future. Perhaps the hundreds of millions of dollars it wants to keep going could be better utilised elsewhere.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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